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NTMs reductions in TPP countries

Disclaimer: The views represented in these presentation notes do not represent official positions or policy of Purdue University or the Center for Global Trade Analysis.

• What is CP-TPP?• The CP-TPP(Comprehensive and Progressive Agreement for Trans-Pacific

Partnership) is a proposed trade agreement between eleven Pacific Rim countries concerning a variety of matters of economic policy

• Member countries: Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Malaysia, Mexico, Peru, and Vietnam

• This agreement was reached on 30 December 2018 after 8 years of negotiations

• Among other things, the CP-TPP seeks to lower trade barriers such as tariffs and non-tariff measures(NTMs)

Overview of CP-TPP

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• Petri and Plummer(2016) “The Economic Effects of the Trans-Pacific Partnership: New Estimates”

• Estimate TPP(Previous version of CP-TPP, includes the United State) will increase annual incomes in the United State by 0.5 percent of GDP

• For non-TPP members, most of their real incomes will decrease because the higher trade barriers around the world

Literature Review (1)

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• Petri and Plummer(2017) “Going It Alone in the Asia-Pacific: Regional Trade Agreements Without the United States”

• Without the United State in TPP, remaining members in TPP could generate benefits to members, albeit with gains only about one-third as large as those expected from the 12-member TPP

• For the United States the implications are more negative. The United States would forego the benefits of participating deeply in the integration of a very dynamic region

• High-quality agreements lead to substantially larger gains than less rigorous ones. For example, the CP-TPP agreement could produce more gains than RCEP, even though the CP-TPP economies have only one-third the GDP of the RCEP region

• CP-TPP has more tariff and NTMs reduction than RCEP

Literature Review (2)

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• Reductions of NTMs, what are the differences between front-loading versus gradual changes?

• Front-loading leads to higher results overall (higher exports, higher GDP, among others) versus a gradual implementation of NTMs. Changes in NTMs take time, so front-loading will lead to over estimating the impact of a reduction in NTMs.

ABSTRACT

6Disclaimer: {Optional -Use this text box to absolve your home institution of any attachment to the views and findings of your presentation}

• TPP countries: 11 countries that border the Pacific Ocean signed up to the TPP in Feb 2016 – roughly 40% of the world economic output and about 800 million in population (almost double the population of the EU’s single market).

• Does not include the USA nor China• TPP agreed to reduction in both the tariffs and the non-tariff

barriers to trade• Slashing tariffs and fostering trade to boost growth

• NTMs reduction• The attention has shifted partially to non-tariff measures due to the

emergence of the deep free trade agreements

Motivation

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• Following Petri, Plummer and Zhai (2011) • Non-tariff barriers are represented by tariff equivalents • Represent barriers that were applied to all trade partners prior to

agreement• We assume elimination of 56.3% of NTBs in case of goods and 37.5% in

the case of services

Reductions in NTMs applied

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• Aggregation • 15 regions (11 TPP countries, USA, CHINA, EU 27 and ROW)• 18 commodities • 5 activities

• Period:• 15 years (with schedule of tariff reductions overtime and/or NTMs starting

in 2019)• The baseline database used includes the NTMs (AlterTax) and

tariffs

Model and Data

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• Include both tariff reductions and NTM reduction.

• Scenario 1: Tariff reductions + one-time NTM reduction shocks (front loading)

• Scenario 2: Tariff reductions + gradual NTM reduction shocks (over 10 years)

Shocks

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• Global results• An example of TPP countries: Malaysia• An example of non-TPP countries: China

Results Overview

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Global Results: NTM Reduction (2019)

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NTMS 1 AUS 3 JPN 4 BRN 5 MYS 6 SGP 7 VNM 9 CAN 10 MEX 12 NZL 13 CHL 14 PER

1 AUS -2.71842 -4.73333 -3.32984 -6.63796 -6.91836 -7.61258 -3.3223 -3.79524 -2.23909 -1.4904 -4.5973

3 JPN -2.11544 -1.58716 -2.94667 -6.43607 -8.12942 -5.29378 -5.17991 -7.26303 -1.59439 -1.14688 -4.81127

4 BRN -1.86246 -3.43338 -2.48175 -6.63892 -8.65476 -7.50869 -4.47987 -4.24835 -2.2041 -1.11716 -6.62598

5 MYS -1.28146 -3.43581 -4.02312 -5.32132 -7.61545 -7.3803 -3.82459 -4.17594 -1.69554 -1.64181 -5.84621

6 SGP -5.15152 -3.29302 -5.7603 -10.3564 -5.31252 -8.09649 -6.74957 -8.14079 -2.94257 -1.58927 -5.91694

7 VNM -1.94164 -2.82197 -3.54748 -5.57278 -9.08406 -4.90358 -3.5802 -4.69824 -2.25986 -2.08001 -4.71609

9 CAN -3.01203 -4.09064 -4.77039 -6.61585 -11.7653 -7.55709 -1.84543 -6.00008 -2.8184 -2.03894 -5.55442

10 MEX -0.87011 -3.01258 -2.74683 -7.45458 -8.95478 -7.97133 -1.45695 -2.59567 -0.58742 -1.74544 -2.90002

12 NZL -1.70716 -3.04798 -3.56954 -5.76437 -8.13693 -7.32511 -3.27114 -3.80721 -1.07705 -1.24403 -4.73478

13 CHL -1.47186 -3.82 -4.82173 -10.3409 -10.8017 -9.8764 -4.0351 -5.93689 -2.22831 -1.89526 -6.35608

14 PER -0.77833 -3.65941 -3.33723 -11.0789 -10.2798 -10.122 -2.84385 -6.78161 -0.91384 -1.09534 -2.42117

Global Results: Exports (cumulative)

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Global Results: ROR and Global Capital Goods, Y-O-Y

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ROR: upper two line (yellow and blue)Global capital goods: lower two lines

TPP Country: Malaysia, GDP, Y-O-Y

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TPP Country: Malaysia Exports, Y-O-Y

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TPP Country: Capital Investment, Malaysia, Y-O-Y

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TPP Country: Malaysia ROR, Y-O-Y

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TPP Country: Malaysia Capital Price, Y-O-Y

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TPP Country: Malaysia Unskilled labor Price, Y-O-Y

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Non-TPP: China GDP, Y-O-Y

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Non-TPP: China Exports

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Non-TPP: China Imports, Y-O-Y

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• The GDP growth in TPP countries is larger in one-time NTM reduction than the scenario with gradual NTM reduction in the first year(2019), especially in Malaysia.

• The cumulative effect converges eventually.• Global exports increase and global ROR jumps initially. • What drives labor price increase?• China’s GDP and export growth initially decrease, but not go

down deeper in the long run.

Conclusion

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